Subdued Growth No Barrier To Primoris Services Corporation (NYSE:PRIM) With Shares Advancing 26%

Despite an already strong run, Primoris Services Corporation (NYSE:PRIM) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 112% in the last year.

After such a large jump in price, given around half the companies in the United States have price-to-earnings ratios (or "P/E's") below 19x, you may consider Primoris Services as a stock to potentially avoid with its 26.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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With earnings growth that's superior to most other companies of late, Primoris Services has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

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Keen to find out how analysts think Primoris Services' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Primoris Services' Growth Trending?

Primoris Services' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 55% gain to the company's bottom line. The latest three year period has also seen an excellent 95% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the eight analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 11% per year, which is not materially different.

With this information, we find it interesting that Primoris Services is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Primoris Services' P/E

Primoris Services shares have received a push in the right direction, but its P/E is elevated too. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Primoris Services currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Primoris Services that you need to be mindful of.

If these risks are making you reconsider your opinion on Primoris Services, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.